Manila in the 50s
our neighbors in Asia? Why was the country overtaken by the regions previous laggards?
Is this the classic case of ningas kugon (short-lived enthusiasm)?
Is the phenomenon indisputable evidence that Filipinos unfortunately are flashy starters but are not steady sloggers and great finish-ers?
Or is it because of the proverbial katamaran (sloth or laziness) induced by the hot weather and extremely-rich natural resources?
These were the common-place explanations for the countrys backwardness at an earlier time. As backwardness persisted into polit-ico-economic crises during the martial and post-martial law periods, additional expla-nations included graft & corruption, colonial mentality, US imperialism, dirty politics or just too much politics.
To trained and seasoned political economists, the blame put on politics was first puzzling and soon became a laughable matter!
The country was the first republic in Asia, hav-ing fired the first shots against the Western colonialists. Filipino entrepreneurs estab-lished the first airline companyalso in Asia, even ahead of Japan Air Lines. In the golden age of Philippine industry and manufacturing in the 1950s, the country was acknowledged as second only to Japan in terms of economic development; and the Northeast Asian NICs (newly-industrializing-countries such as South Korea, Taiwan, Hong Kong, and Sin-gapore) of the 1970s and 1980s were without dispute considered back-waters at the time. It goes without saying that the newer and more recent Asian economic stars such asMalaysia, Thailand, the Peoples Republic of China (PRC), the Socialist Republic of Viet-nam (SRV), and Indiawere considered the continents rice paddies, mangrove swamps, and heavily-forested boondocks.
Why have the Philippines languished as a lower middle income country (LMIC) in recent decades after a trailblazing and pioneering start?
Why is the Philippines backward compared to
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Economic growth in the country has not been as effective in reducing poverty. The ADB report found that for every 1% growth in GDP, poverty incidence has gone down by an average of 1.5% across theworld and 2% within Asia. In contrast, poverty incidence in the Philippines had actually risen since 2003, a time when the economy is thought to have grown very well. According to the World Bank, poverty worsened from 2003 to 2009an increase in the absolute number of poor people (an additional 3.4 million) as well as an increase in the percentage of poor people (from 24.9 % to 26.5% of total population). In short, not only is the countrys growth record dismal. Its capacity to share the benefits of growth is also deplorable.
STRATEGIC THINKING: Robust & Inclusive Growth for the Philippines
IN THIS ISSUE...
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First of all, what is clean politics?
When is politics just enough and not too much?
Perhaps, it is indeed a problem of poli-tics with adjectives and other qualifiers. Politicswhether dirty or clean, exces-sive or just adequateis an inevitable process of human existence and there-fore, a ubiquitous aspect of any human society.
Including, of course, Philippine society!
Corruption, politics, and essentialised national traits such as sloth (katamaran) and ningas kugon obviously cannot ad-equately explain why the country is cur-rently at the tail-end of the Asian race. As a background, the countrys economic growth performance had been mod-erate and uneven and well below the post-war growth rates of several high performing Asian economies [such as the East Asian NICs and the ASEAN-3]. In a report written for the Asian Devel-opment Bank (ADB), former Economic Planning Secretary Cielito Habito noted that while East Asian economies aver-aged annual gross domestic product (GDP) growth rates from 3.6 % to 6.0% from 1960 to 2008, the Philippines only managed an annual average increase of 1.4%. With population still increasing at more than 2 percent per year, real per-capita incomes have risen only by about 20 percent from 1981 to 2009.
Mendoza and Tan (2001) established that Philippine total factor productiv-ity (TFP) had diminished steadily since the establishment of the post-war 3rd Philippine Republic in July 4, 1946 after peaking in the late 1940s and the early 50s. After the so-called Golden Age, productivity has gone down steadily such that Asias laggards overtook the Philippine idol one after the other.
Economic growth in the country has not been as effective in reducing poverty. The ADB report found that for every 1% growth in GDP, poverty incidence has gone down by an average of 1.5% across the world and 2% within Asia. In
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contrast, poverty incidence in the Phil-ippines had actually risen since 2003, a time when the economy is thought to have grown very well. According to the World Bank, poverty worsened from 2003 to 2009an increase in the ab-solute number of poor people (an addi-tional 3.4 million) as well as an increase in the percentage of poor people (from 24.9 % to 26.5% of total population). In short, not only is the countrys growth record dismal. Its capacity to share the benefits of growth is also deplorable.
First, South Korea, Taiwan, and Sin-gaporeall got their acts together in the 1970s. Slater et al. (2009) offers a novel explanation for the NEA-NICs and coined the term systemic vulnerability. According to this explanation, the three faced existential threats (from North Ko-rea, Red China, and Singapores expul-sion from the Federation of Malaysia, re-spectively) and suffered from poor natural resource endowments. The ruling elites of all three countries had to consolidate their home fronts by buying broader political support. The South Korean and Guomintang elites implemented land re-form to win the loyalty of the rural peas-antry. It was not particularly difficult for the expatriated Guomintang since they were giving away land in Taiwan that they did not own.
Then, it was the turn of Malaysia and Thailand, and Indonesia (under the dic-tatorship of Suharto) in the subsequent decade when Japanese capital went southward as the yen appreciated due to the Plaza-Louvre Accords between the United States and Japan. Then the Peoples Republic of China (PRC) after Maos death invented socialism with Chinese characteristics and invited for-eign investments and overseas Chinese capital into the countrys coastal zones even as the Communist Party of China (CPC) retained its political monopoly as the countrys ruling party. Cross-Strait relations burgeoned during the 90s to the mutual benefit of the two Chinas notwithstanding their diplomatic issues about which state should sit at the UN Security Council and which state is merely a province of the other.
The Chinese business model will be enthusiastically emulated by neighbour-ing Vietnam after the loss of the Soviet subsidy at the end of the Cold War.
The success stories in Asia suggest that a strong state is necessary. But even such a state is not sufficient. The Chi-nese state under Mao was without dis-pute was a strong one as it was able to build its own nuclear bomb and stand up to the Soviet Union, one of the two acknowledged worlds super-powers. However, these successes also encour-aged the wrong conclusion that authori-tarian dictatorships were better than de-mocracies in the incubation of economic miracles. Post-Mao China had to allow capitalist market forces to operate to help modernize its economy.
In the Philippines, policymakers, ordi-nary voters and all stake-holders must realize that state action and regulation is necessary to create vigorous markets (where there are none or where they are sluggish) and to keep them free and vibrant. The magic of the markets will be fully realized if markets are as free as possible. Left by themselves, how-ever, many markets do not remain free. It takes competent state regulation to keep them free. Thus, our political lead-ers, in tandem with our economic plan-ners, must abandon the sterile and false state vs. market debate that has oc-cupied academics and policy makers in the near past. The retreat of the state from direct intervention and involvement in the market economy requires new governance and regulatory capacities on the part of this same state.
However important these concerns above (such as the role of the state and markets) are, it is quite clear that the principal development challenge for the Philippines is inclusive growth.
The recently released Philippine Devel-opment Plan (2011-2016)1, observed what was obvious all alongthat eco-nomic growth in the Philippines had not been inclusive so far. The plan defined inclusive growth as growth that is rapid enough to
